S&P rates Arch Coal convert at B+

Standard & Poor's assigned a B+ preferred stock rating to Arch Coal Inc.'s $150 million of perpetual cumulative convertible preferred stock and affirmed its existing ratings.

The ratings reflect a diversified base of reserves but high costs of production in the eastern U.S., S&P said.

Arch Coal's 50% debt leverage, taking into account the new convertible, is acceptable for the ratings but S&P noted that it also has post-retirement and reclamation obligations totaling $455 million. Further obligations include ongoing minimum royalty payments of which $63 million are due in 2003.

At Dec.31, liquidity was $253 million, consisting of $10 million in cash and $243 million available under its $350 million revolver that matures in 2007. With the use of the proceeds from the convertible to pay down the revolver, liquidity will increase by $65 million.

S&P said it expects cash flow from operations to be sufficient to meet capital expenditures and minimum royalty payments.

The outlook is stable in that Arch Coal will continue to benefit from a relatively stable cash flow and diversified reserves. However, it remains exposed to high costs, repricing risks and weak economic conditions.

Moody's rates Arch Coal convert B1

Moody's assigned a B1 rating to Arch Coal Inc.'s proposed $150 million of cumulative convertible preferred stock and confirmed its existing ratings.

The ratings are supported by its relatively stable operating profile and cash flow, which can be attributed to its size, diversified asset and customer base and low operating costs, Moody's said.

Nevertheless, temperate weather and economic weakness have reduced electricity demand and caused coal supply to outpace demand.

As a result, Arch Coal's operating income declined to $29 million in 2002 from $62 million in 2001 and cash from operating activities just covered capex. A continuation of these operating results could well lead to a downgrade.

Furthermore, if production volumes and spot market prices remain at current levels, rising costs would pressure debt protection measurements and necessitate a downgrade.

Therefore, Moody's has adopted a negative rating outlook.

S&P rates Oneok convert A

Standard & Poor's assigned an A rating to energy provider Oneok Inc.'s $350 million senior unsecured notes underlying its 8.5% mandatory.

Oneok's management can now dedicate the proceeds of future sales of equity or assets, as well as surplus cash flow, to the debt-reduction program it had attempted to launch one year ago, S&P said.

The outlook is stable, incorporating stable earnings from regulated gas distribution businesses, as well as from the fee-based businesses, but also based on S&P expectation that free cash flow and future sales of equity will be applied to reduce debt.

S&P puts AEP on negative watch

Standard & Poor's placed American Electric Power Co. Inc.'s ratings on CreditWatch with negative implications following the large write-offs recorded by the company in its fourth quarter 2002 earnings.

Resolution of the watch is expected within a short time frame as the plan to restore its balance sheet is executed.

AEP's proposed outline to address its balance sheet appears to be a sound and achievable plan but management must be able to show its ability to accomplish the plan and that it is sufficient to produce a credit profile that is consistent with a BBB+ rating, S&P said.

Until greater clarity is demonstrated on those points, the possibility remains that ratings will settle at a lower level.

AEP announced in its earnings that due to asset write-downs and adjustments for future pension liabilities, some $1.6 billion of common equity on its balance sheet was removed in fourth quarter.

The company plans to use a combination of cost reductions, asset sales and a lower dividend to improve earnings and cash flow and reduce balance sheet leverage to offset weakening credit protection measures. AEP has also indicated that it is considering the issuance of additional common equity to strengthen its balance sheet.

Any shortfall in AEP's execution of its strategy to rebuild the balance sheet would jeopardize its credit quality and would likely lead to lower ratings, S&P said.

Moody's confirms HealthSouth

Moody's confirmed the ratings of HealthSouth Corp. (senior unsecured at Ba3 and senior subordinated at B2), based on lower than expected fall-out from managed care contract negotiations to date, cost-cutting actions and a refocus on deleveraging in 2003 and beyond.

The outlook is stable, assuming cash flow metrics improve with deleveraging, any obligation resulting from litigation do not cause significant reduction in credit metrics and there is no further significant deterioration in reimbursement and/or volume.

Fitch affirms Sprint ratings

Fitch Ratings affirmed Sprint Corp. and Sprint Capital Corp. senior unsecured debt and convertible equity units at BBB.

The outlook remains stable.

While current credit protection metrics are within the rating, the rating balances the anticipated improvement of credit protection metrics in 2003 with the challenges to Sprint's credit profile.

The rating also incorporates Sprint's revenue and asset diversity, the expectation of continued generation of free cash flow and deleveraging as well as improvement of Sprint PCS Group's operating metrics and a stable liquidity profile.

Moody's rates Central Parking loan Ba2

Moody's Investors Service assigned a Ba2 rating to Central Parking's $350 million senior secured credit facilities, confirmed its $175 million senior revolving credit facility due 2007 and $175 million senior secured term loan B due 2009 at Ba2 and downgraded its $78 million convertible trust issued preferred securities to B1 from Ba3. The outlook is stable.

Moody's said the ratings on Central Parking's senior secured bank credit facilities reflect the benefits and limitations of the collateral package. The facilities are secured by a first priority perfected interest in all of the capital stock of each of the material domestic subsidiaries of the borrower and 65% of the capital stock of each material foreign subsidiary of the borrower. There is a negative pledge on all other present and future assets and properties of the borrower and its material subsidiaries. The senior secured bank credit facilities are guaranteed by all existing and future material direct and indirect domestic subsidiaries of the Borrower. There is a springing lien on all material assets that will go into effect if the ratings are lowered to Ba3 by Moody's and BB- by S&P.

Moody's said the rating on the convertible preferred securities reflects their contractual subordination to borrowings under the credit facility. Moody's said its decision to increase the notching to two levels below the company's now senior secured debt reflects its analysis that there now exists a higher degree of structural subordination.

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